KBRA Assigns Ratings to Shore Bancshares, Inc.

NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) assigns a senior unsecured debt rating of BBB, a subordinated debt rating of BBB-, and a short-term debt rating of K3 for Easton, Maryland based Shore Bancshares, Inc. (NASDAQ: SHBI). In addition, KBRA assigns deposit and senior unsecured debt ratings of BBB+, a subordinated debt rating of BBB, and short-term deposit and debt ratings of K2 for its subsidiary, Shore United Bank. The Outlook for all long-term ratings is Stable.

The ratings are supported by SHBI’s strong core deposit franchise that has resulted in below average deposit costs (0.53% as of 1H20) and a mostly stable NIM over the past five years. The company’s funding profile, and subsequently earnings, have undoubtedly benefitted from robust deposit market shares in SHBI’s core operating markets. Moreover, with over 95% of the funding mix consistently comprised of core deposits, reliance on higher cost wholesale funding sources has been minimal. Further underpinning the ratings is SHBI’s reliable noninterest income generation, somewhat diversifying the revenue mix. While fee income generation has been slightly lower than the majority of higher rated peers, SHBI has consistently produced noninterest income close to 15% of operating revenue, stemming mostly from wealth management related fees and interchange fees. KBRA favorably views this level of steady noninterest income, especially considering the expected continuance of margin pressure for the banking industry. The ratings are primarily constrained by a relatively small operating footprint, which is located mainly throughout MD’s Eastern Shore, and a corresponding geographic concentration risk. However, KBRA recognizes that the company’s emphasis on growing entirely within a small geographic area has resulted in management’s deep knowledge of local markets and is a catalyst of SHBI’s large deposit market shares. SHBI’s exposure to industries vulnerable to COVID-19 is mostly in line with peers and concentrated in hospitality (8% loans) and retail CRE (9% of loans). However, hotel-related loans are mostly located near shore lines in MD and DE, which have experienced comparatively high occupancy rates, according to management.

KBRA continues to monitor the potential direct and indirect effects of the coronavirus on banking and other sectors. Please refer to our publication U.S. Bank 1Q 2020 Ratings Compendium for our latest thoughts.

The ratings are based on KBRA’s Bank & Bank Holding Company Global Rating Methodology published on October 16, 2019.

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Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA.